Blue Hills Bancorp, Inc. Reports Third Quarter Earnings

Company Release - 10/24/2018 7:00 AM ET

NORWOOD, Mass., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Blue Hills Bancorp, Inc. (the “Company” or "Blue Hills Bancorp") (NASDAQ: BHBK), the parent of Blue Hills Bank (the "Bank"), today announced net income of $5.8 million, or $0.23 per diluted share, for the third quarter of 2018 compared to net income of $6.5 million, or $0.26 per diluted share, for the second quarter of 2018 and net income of $3.8 million, or $0.16 per diluted share, for the third quarter of 2017. Net income on a non-GAAP basis, excluding certain nonrecurring items, was $6.8 million, or $0.27 per diluted share, for the third quarter of 2018 compared to net income on a non-GAAP basis, excluding certain nonrecurring items, of $6.1 million, or $0.25 per diluted share, for the second quarter of 2018 and net income on a non-GAAP basis, excluding certain nonrecurring items, of $3.9 million, or $0.16 per diluted share for the third quarter of 2017 (see page 15 for a reconciliation of GAAP to non-GAAP measures).

For the nine months ended September 30, 2018, net income was $18.8 million, or $0.75 per diluted share, compared to net income of $15.2 million, or $0.62 per diluted share for the nine months ended September 30, 2017. Net income on a non-GAAP basis, excluding certain nonrecurring items, was $18.9 million, or $0.75 per diluted share, for the first nine months of 2018 compared to net income on a non-GAAP basis, excluding certain nonrecurring items, of $9.8 million, or $0.40 per diluted share for the first nine months of 2017 (see page 16 for a reconciliation of GAAP to non-GAAP measures).

On September 20, 2018, Blue Hills Bancorp announced its entry into a definitive Agreement and Plan of Merger with Independent Bank Corp. ("Independent"), pursuant to which Blue Hills Bancorp will merge into Independent ("Merger"). Completion of the transaction is subject to customary closing conditions, including receipt of regulatory approvals and the approvals of Blue Hills Bancorp's and Independent's shareholders. The transaction is expected to close in the first half of 2019.

Commenting on the Company's results, William Parent, President and Chief Executive Officer of Blue Hills Bancorp, said, "Our results for the third quarter and first nine months of the year continue to reflect strong contributions across all business lines. Growth in customer deposits from our retail banking group allowed us to reduce the level of wholesale funding, while deposit-related fee categories were at record quarterly levels. Mortgage banking revenues continued to make a significant contribution to earnings despite lower overall market volumes as in-house originations totaled $375 million for the first nine months of the year. On the commercial lending side, commercial business and real estate loans grew 5% and 4%, respectively, from the end of the second quarter and are up 17% and 14%, respectively, from a year ago. I want to thank all of our employees who continue to contribute to the ongoing improvement in our financial performance. We are excited by our recently announced merger with Independent Bank Corp. and look forward to the closing of that transaction in the first half of 2019."

BALANCE SHEETCompared to June 30, 2018, total assets grew $41 million, or 2%, to $2.8 billion at September 30, 2018. The increase was mainly driven by a $45 million, or 2%, increase in loans to $2.3 billion at September 30, 2018. By category, the growth was due to a $29 million, or 4% increase in commercial real estate loans, an $18 million, or 2%, increase in residential mortgage loans, and a $14 million, or 5%, increase in commercial business loans. These increases were partially offset by a $13 million, or 15%, decline in construction loans as well as smaller declines in home equity and consumer loans.

Compared to September 30, 2017, total assets increased $237 million, or 9%. Loans drove the growth in total assets from September 30, 2017, increasing $219 million, or 10%. By category, the increase from September 30, 2017 was due to residential mortgage loans, which were up $102 million, or 11%; commercial real estate loans, which were up $102 million, or 14%; and commercial business loans, which were up $42 million, or 17%. Residential mortgage originations were $136 million in the third quarter of 2018 compared to $152 million in the third quarter of 2017 while commercial loans (real estate and non-real estate combined) added to the balance sheet were $90 million in the third quarter of 2018 compared to $64 million in the third quarter of 2017.

Compared to June 30, 2018, deposits grew $54 million, or 3%, to $2.2 billion at September 30, 2018. The growth from the end of the second quarter was driven by a $40 million, or 11%, increase in NOW and demand accounts as well as a $37 million, or 7%, increase in certificates of deposit. These increases were partially offset by small declines in regular savings, money market deposits and total brokered deposits. The growth in deposits allowed for a reduction in borrowings as short-term borrowings declined $12 million, or 11%, to $98 million at September 30, 2018 and long-term borrowings dropped $10 million, or 11%, to $80 million at September 30, 2018.

Compared to September 30, 2017, deposits grew $180 million, or 9%, and included growth in consumer, small business, and commercial segments. By category, the growth mainly came from certificates of deposit, which were up $142 million, or 34%. In addition, total brokered deposits were up $83 million, or 30%, and NOW and demand deposits increased $39 million, or 10%. These increases were partially offset by a $46 million, or 7%, decline in money market deposits and a $38 million, or 16%, decline in regular savings deposits. Short-term borrowings increased $78 million from a year ago while long-term debt declined $30 million.

Stockholders’ equity was $403 million at September 30, 2018 compared to $400 million at June 30, 2018 and $399 million at September 30, 2017. The increases in both periods mainly reflect net income and share based compensation, partially offset by the payment of dividends.

NET INTEREST AND DIVIDEND INCOMEReported net interest and dividend income was $19.5 million in the third quarter of 2018, up $480,000, or 3%, from the second quarter of 2018 and up $2.5 million, or 15%, from the third quarter of 2017. Reported net interest margin was 2.92% in the third quarter of 2018, down from 2.98% in the second quarter of 2018, but up from 2.77% in the third quarter of 2017.

Net interest and dividend income on a fully taxable equivalent basis (FTE), a Non-GAAP measure, was also $19.5 million in the third quarter of 2018, up $481,000, or 3%, from $19.0 million in the second quarter of 2018, and up $2.5 million, or 15%, from $17.0 million in the third quarter of 2017. Net interest margin on a fully taxable equivalent basis (FTE), a Non-GAAP measure, was 2.93% in the third quarter of 2018 compared to 2.99% in the second quarter of 2018 and 2.78% in the third quarter of 2017. Purchase accounting accretion added $74,000, $171,000, and $103,000 to net interest and dividend income in the third quarter of 2018, second quarter of 2018, and third quarter of 2017, respectively. Purchase accounting accretion also added 2 basis points to net interest margin in the third quarter of 2018 and third quarter of 2017 and 3 basis points to net interest margin in the second quarter of 2018. In addition, net interest income in the second quarter of 2018 included $285,000 of fees related to loans that were paid off, which added 4 basis points to net interest margin in that quarter.

The improvement in net interest and dividend income (FTE) in both comparisons was helped by loan growth. Average loans increased $92 million, or 4%, from the second quarter of 2018 and were up $206 million, or 10%, from the third quarter of 2017. In both comparisons, the increase was driven by higher levels of commercial real estate loans, residential mortgages, and commercial business loans, partially offset by declines in construction, home equity and consumer loans.

The improvement in net interest margin (FTE) from the third quarter of 2017 was mainly due to higher floating rate loan yields related to the interest rate increases announced by the Federal Reserve Bank. There have been eight rate increases announced by the Fed since December 2015 totaling 200 basis points. The Company has maintained and continues to maintain an asset sensitive interest rate risk position, which has generally resulted in earning asset yields increasing at a faster pace than interest bearing liability costs. In the third quarter of 2018, however, the increase to net interest income from repricing floating rate loans tied to LIBOR was much lower than in the second quarter and this, along with higher funding costs, a lower contribution from purchase accounting accretion, and the absence of the aforementioned fees related to loans that were paid off contributed to the linked quarter decline in net interest margin (FTE).

NONINTEREST INCOMENoninterest income was $3.9 million in the third quarter of 2018, up $223,000, or 6%, from the second quarter of 2018. The increase reflects higher loan level derivative income, which was up $901,000 from the second quarter due to a higher volume of new commercial loan customer back-to-back interest rate swap contracts. The amount of revenue in the loan level derivative income category can be volatile since it is a function of the amount of commercial loans that customers opt to convert from floating to fixed rate via interest rate swaps in any given quarter. In addition, the Company also had increases of $51,000, or 12%, in deposit account fees and $17,000, or 4%, in interchange and ATM fees reflecting higher transaction volumes and pricing changes. Both categories posted record quarterly highs in the third quarter. Partially offsetting these improvements was a $61,000 unrealized loss on equity securities in the third quarter compared to an unrealized gain of $452,000 recorded in the second quarter, a $197,000, or 23%, drop in miscellaneous income due mainly to lower commercial loan fees and lower income on Small Business Investment Community ("SBIC") investments, and a $59,000, or 6%, decline in mortgage banking income.

Compared to the third quarter of 2017, noninterest income increased $1.0 million, or 36%, mainly due to an $888,000 increase in loan level derivative income. Also contributing to the increase were higher levels of deposit account fees, interchange and ATM fees, and miscellaneous income. Partially offsetting the increases were a $172,000, or 15%, decline in mortgage banking income and a $61,000 unrealized loss on equity securities recognized in the third quarter of 2018.

NONINTEREST EXPENSENoninterest expense was $15.5 million in the third quarter of 2018, up $1.8 million, or 13%, from the second quarter of 2018 and up $2.2 million, or 16%, from the third quarter of 2017. The third quarter of 2018 included $1.3 million of charges related to the pending merger with Independent Bank Corp. as well as a $720,000 charge for a supplemental executive retirement agreement as previously disclosed in the Company's second quarter 2018 report on Form 10-Q as filed with the Securities and Exchange Commission. Excluding these two items, noninterest expense was $13.5 million in the third quarter of 2018, down $209,000, or 2%, from the second quarter of 2018 and up $127,000, or 1%, from the third quarter of 2017. The linked quarter decline was mainly due to a $148,000, or 33%, drop in professional fees due to lower legal and consulting fees and a $110,000, or 1%, decline in salaries and benefits expense, excluding the aforementioned charge for a supplemental executive retirement agreement. Compared to the third quarter of 2017, salaries and benefits expense increased $175,000, or 2%, excluding the aforementioned charge for a supplemental executive retirement agreement.

INCOME TAXESThe effective income tax rate was 27.4% in the third quarter of 2018 compared to 26.8% in the second quarter of 2018 and 37.9% in the third quarter of 2017. The lower effective tax rates in 2018 are mainly due to the Tax Act, which was enacted on December 22, 2017 and provided for a reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018.

ASSET QUALITYThe provision for loan losses reflects management’s assessment of risks inherent in the loan portfolio. The provision for loan losses was a credit of $182,000 in the third quarter of 2018 compared to provisions of $101,000 in the second quarter of 2018 and $242,000 in the third quarter of 2017. The level of the provision in all three quarters reflects the Company's continued migration from the use of historical loss rates based on national FDIC data to loss rates based on the Company's own experience.

The allowance for loan losses as a percentage of total loans was 0.86% at September 30, 2018 compared to 0.89% at June 30, 2018 and 0.97% at September 30, 2017. The Company had net loan charge-offs of $23,000 in the third quarter of 2018 compared to net loan charge-offs of $161,000 in the second quarter of 2018 and net loan recoveries of $89,000 in the third quarter of 2017.

Nonperforming assets were $15.4 million at September 30, 2018 compared to $13.9 million at June 30, 2018 and $11.5 million at September 30, 2017. The linked quarter growth in nonperforming assets reflects increases in nonperforming commercial real estate loans and residential mortgages, partially offset by a decline in nonperforming home equity loans. Nonperforming assets as a percentage of total assets were 0.55% at September 30, 2018 compared to 0.51% at June 30, 2018 and 0.45% at September 30, 2017.

ABOUT BLUE HILLS BANCORPBlue Hills Bancorp, Inc., with corporate headquarters in Norwood, MA, had assets of $2.8 billion at September 30, 2018 and operates 11 retail branch offices in Boston, Dedham, Hyde Park, Milton, Nantucket, Norwood, West Roxbury, and Westwood, Massachusetts. Blue Hills Bank is a full service, community bank with its main office in Hyde Park, Massachusetts. The Bank's three branches in Nantucket, Massachusetts operate under the name, Nantucket Bank, a division of Blue Hills Bank. The Bank provides consumer, commercial and municipal deposit and loan products in Eastern Massachusetts through its branch network, loan production offices and eCommerce channels. The Bank offers commercial business and commercial real estate loans in addition to cash management services and commercial deposit accounts. The Bank also serves consumers through a full suite of consumer banking products including checking accounts, mortgage loans, equity lines of credit and traditional savings and certificate of deposit accounts. The Bank has invested substantially in online technology including online account opening and funding, online mortgage applications, online banking, mobile banking, bill pay and mobile deposits. Blue Hills Bank has been serving area residents for over 145 years. For more information about Blue Hills Bank, visit www.bluehillsbank.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis press release, as well as other written communications made from time to time by the Company and its subsidiaries and oral communications made from time to time by authorized officers of the Company, may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the PSLRA). Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "intend" and "potential." For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

The Company cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: our ability to implement successfully our business strategy, which includes significant asset and liability growth; changes that could adversely affect the business in which the Company and the Bank are engaged; prevailing economic and geopolitical conditions; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting the Company's operations, pricing, products and services. For additional information on some of the risks and important factors that could affect the Company’s future results and financial condition, see “Risk Factors” in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

ADDITIONAL INFORMATION AND WHERE TO FIND ITIn connection with the proposed Merger with Independent Bank Corp. (“Independent”), Independent intends to file with the SEC a Registration Statement on Form S-4 that will include a joint proxy statement of Blue Hills Bancorp and Independent and a prospectus of Independent. Investors and security holders are advised to read the Registration Statement and the joint proxy statement/prospectus when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. Investors and security holders may obtain a free copy of the Registration Statement (when available), including the joint proxy statement/prospectus and other documents filed by Blue Hills Bancorp and Independent with the SEC at the SEC’s website at www.sec.gov. These documents may be accessed and downloaded, free of charge, at Blue Hills Bancorp’s website at www.bluehillsbancorp.com under the section “SEC Filings-Documents” or by directing a request to the Corporate Secretary, Blue Hills Bancorp, Inc., 500 River Ridge Drive, Norwood, Massachusetts 02062, telephone (617) 361-6900. You will also be able to obtain these documents free of charge at Independent’s website at www.rocklandtrust.com under the tab “Investor Relations” and then under the heading “SEC Filings” or by directing a request to Investor Relations, Independent Bank Corp., 288 Union Street, Rockland, Massachusetts 02370, telephone (781) 982-6737.

PARTICIPANTS IN THE SOLICITATION

This filing is not a solicitation of a proxy from any security holder of Blue Hills Bancorp or Independent. However, Blue Hills Bancorp, Independent, their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies from stockholders of Blue Hills Bancorp and Independent with respect to the proposed Merger. Information regarding the directors and executive officers of Blue Hills Bancorp may be found in its definitive proxy statement relating to its 2018 Annual Meeting of Stockholders, which was filed with the SEC on April 11, 2018. Information regarding the directors and executive officers of Independent may be found in its definitive proxy statement relating to its 2018 Annual Meeting of Shareholders, which was filed with the SEC on March 29, 2018, and its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 27, 2018. Additional information regarding the participants in the proxy solicitation and a description of their direct and indirect interests in the Merger will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available. You may obtain free copies of the documents described in this paragraph in the manner described in the preceding paragraph.

(1) Interest income on tax-exempt securities and loans was adjusted to a fully taxable-equivalent (FTE) basis using a federal statutory tax rate of 21% for the three months ended September 30 and June 30, 2018. A statutory rate of 35% was used in the third quarter of 2017.

Blue Hills Bancorp Inc.

Average Balances/Yields

(Unaudited; dollars in thousands)

Year to Date

September 30, 2018

September 30, 2017

Averagebalance

Interest

Yield/Cost

Averagebalance

Interest

Yield/Cost

Interest-earning assets

Total loans (1)

$

2,240,164

$

69,446

4.14

%

$

2,034,160

$

55,985

3.68

%

Securities (1)

311,641

5,607

2.41

335,117

5,470

2.18

Other interest earning assets and FHLB stock

30,734

754

3.28

33,554

629

2.51

Total interest-earning assets

2,582,539

75,807

3.92

%

2,402,831

62,084

3.45

%

Non-interest-earning assets

103,165

100,200

Total assets

$

2,685,704

$

2,503,031

Interest-bearing liabilities

NOW

$

161,338

$

53

0.04

%

$

149,806

$

50

0.04

%

Regular savings

214,546

473

0.29

253,768

617

0.33

Money market

725,867

6,282

1.16

683,708

4,957

0.97

Certificates of deposit

752,858

9,576

1.70

598,640

5,242

1.17

Total interest-bearing deposits

1,854,609

16,384

1.18

1,685,922

10,866

0.86

Borrowings

187,524

2,517

1.79

197,908

1,791

1.21

Total interest-bearing liabilities

2,042,133

18,901

1.24

%

1,883,830

12,657

0.90

%

Non-interest-bearing deposits

215,323

195,496

Other non-interest-bearing liabilities

27,335

26,110

Total liabilities

2,284,791

2,105,436

Stockholders' equity

400,913

397,595

Total liabilities and stockholders' equity

$

2,685,704

$

2,503,031

Net interest and dividend income (FTE)

56,906

49,427

Less: FTE adjustment

(101

)

(184

)

Net interest and dividend income (GAAP)

$

56,805

$

49,243

Net interest rate spread (FTE)

2.68

%

2.55

%

Net interest margin (FTE)

2.95

%

2.75

%

Total deposit cost

1.06

%

0.77

%

(1) Interest income on tax-exempt securities and loans was adjusted to a fully taxable-equivalent (FTE) basis using a federal statutory tax rate of 21% in 2018. A statutory rate of 35% was used in 2017.

Blue Hills Bancorp, Inc.

Average Balances - Trend

(Unaudited; dollars in thousands)

Quarters Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2018

2018

2018

2017

2017

Interest-earning assets

Total loans

$

2,301,946

$

2,209,618

$

2,207,895

$

2,178,388

$

2,096,034

Securities

310,557

311,183

313,212

312,313

301,484

Other interest earning assets and FHLB stock

30,522

28,181

33,533

28,842

32,051

Total interest-earning assets

2,643,025

2,548,982

2,554,640

2,519,543

2,429,569

Non-interest-earning assets

109,429

103,295

96,629

96,781

101,188

Total assets

$

2,752,454

$

2,652,277

$

2,651,269

$

2,616,324

$

2,530,757

Interest-bearing liabilities

NOW

$

166,144

$

160,194

$

157,582

$

160,371

$

153,224

Regular savings

209,797

214,116

219,834

235,864

243,680

Money market

714,539

721,329

742,035

718,489

708,748

Certificates of deposit

836,584

725,904

694,526

653,573

653,339

Total interest-bearing deposits

1,927,064

1,821,543

1,813,977

1,768,297

1,758,991

Borrowings

162,641

197,429

202,944

202,255

133,788

Total interest-bearing liabilities

2,089,705

2,018,972

2,016,921

1,970,552

1,892,779

Non-interest-bearing deposits

229,293

207,888

208,561

220,167

213,459

Other non-interest-bearing liabilities

30,545

25,349

26,063

23,602

23,603

Total liabilities

2,349,543

2,252,209

2,251,545

2,214,321

2,129,841

Stockholders' equity

402,911

400,068

399,724

402,003

400,916

Total liabilities and stockholders' equity

$

2,752,454

$

2,652,277

$

2,651,269

$

2,616,324

$

2,530,757

Blue Hills Bancorp, Inc.

Yield Trend

(Unaudited)

Quarters Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2018

2018

2018

2017

2017

Interest-earning assets

Total loans (1)

4.22%

4.20%

4.01%

3.81%

3.74%

Securities (1)

2.39%

2.36%

2.46%

2.33%

2.12%

Other interest earning assets and FHLB stock

3.68%

3.33%

2.87%

2.15%

2.66%

Total interest-earning assets

4.00%

3.96%

3.81%

3.61%

3.53%

Interest-bearing liabilities

NOW

0.05%

0.04%

0.04%

0.04%

0.04%

Regular savings

0.29%

0.29%

0.30%

0.31%

0.31%

Money market

1.25%

1.15%

1.08%

1.01%

0.99%

Certificates of deposit

1.87%

1.67%

1.53%

1.41%

1.28%

Total interest-bearing deposits

1.31%

1.16%

1.07%

0.98%

0.92%

Borrowings

1.93%

1.85%

1.63%

1.44%

1.49%

Total interest-bearing liabilities

1.36%

1.22%

1.12%

1.02%

0.96%

Net interest rate spread (FTE) (1)

2.64%

2.74%

2.69%

2.59%

2.57%

Net interest margin (FTE) (1)

2.93%

2.99%

2.92%

2.81%

2.78%

Total deposit cost

1.17%

1.04%

0.96%

0.87%

0.82%

(1) Interest income on tax-exempt securities and loans was adjusted to a fully taxable-equivalent (FTE) basis using a federal statutory tax rate of 21% for the three months ended September 30, 2018, June 30, 2018 and March 31, 2018. A statutory rate of 35% was used in 2017.

Blue Hills Bancorp Inc.

Reconciliation of GAAP to Non-GAAP Net Income

(Unaudited; dollars in thousands, except share data)

Quarter Ended

September 30, 2018

Income BeforeIncome Taxes

Provision forIncome Taxes

Net Income

Earnings perCommon Share(diluted)

GAAP basis

$

7,977

$

2,188

$

5,789

$

0.23

Add unrealized loss on equity securities

61

17

44

—

Add merger expenses

1,321

362

959

0.04

Non-GAAP basis

$

9,359

$

2,567

$

6,792

$

0.27

Quarter Ended

June 30, 2018

Income BeforeIncome Taxes

Provision forIncome Taxes

Net Income

Earnings perCommon Share(diluted)

GAAP basis

$

8,823

$

2,366

$

6,457

$

0.26

Less unrealized gain on equity securities

(452

)

(121

)

(331

)

(0.01

)

Non-GAAP basis

$

8,371

$

2,245

$

6,126

$

0.25

Quarter Ended

March 31, 2018

Income BeforeIncome Taxes

Provision forIncome Taxes

Net Income

Earnings perCommon Share(diluted)

GAAP basis

$

8,846

$

2,263

$

6,583

$

0.27

Add unrealized loss on equity securities

69

18

51

—

Less gain on exchange of investment in Northeast Retirement Service

(653

)

(169

)

(484

)

(0.02

)

Less gain on sale of premises and equipment

(271

)

(70

)

(201

)

(0.01

)

Non-GAAP basis

$

7,991

$

2,042

$

5,949

$

0.24

Quarter Ended

December 31, 2017

Income BeforeIncome Taxes

Provision forIncome Taxes

Net Income

Earnings perCommon Share(diluted)

GAAP basis

$

5,858

$

4,565

$

1,293

$

0.05

Add pension settlement charges

317

129

188

0.01

Add impact of tax reform on deferred tax asset valuation

—

(2,500

)

2,500

0.10

Non-GAAP basis

$

6,175

$

2,194

$

3,981

$

0.16

Quarter Ended

September 30, 2017

Income BeforeIncome Taxes

Provision forIncome Taxes

Net Income

Earnings perCommon Share(diluted)

GAAP basis

$

6,183

$

2,342

$

3,841

$

0.16

Add loss on sale of purchased home equity portfolio

118

45

73

—

Non-GAAP basis

$

6,301

$

2,387

$

3,914

$

0.16

The Company's management believes that the presentation of net income on a non-GAAP basis, excluding nonrecurring items, provides useful information for evaluating the Company's operating results and any related trends that may be affecting the Company's business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP.